Dollar Headed for Second Weekly Decline on Stimulus Hopes

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Dollar Headed for Second Weekly Decline on Stimulus Hopes

For the third straight day, the dollar opens our session under modest pressure. 

Overview

Stock futures are in the green on hopes a stimulus deal can be struck before the election, limiting demand for the greenback. In a reversal from Tuesday, the White House now appears open to a bigger stimulus bill. In fact, White House reporter Jake Sherman just tweeted that the “White House is now completely set on striking a COVID stimulus bill.”

As a result, the U.S. Dollar is headed for its second weekly decline.  The Dollar Index is at its weakest level since September 21st.

There is not more top-tier economic data on this week’s schedule so we will look for stimulus headlines to potentially move currency markets.  As the day goes on, we may see pairs slip into tighter, less volatile ranges.

What to Watch Today…

  • No major events scheduled for today

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October Monthly Outlook

EUR  

The Euro popped higher overnight, gaining after data showed industrial production in Italy rose more than 4x what economists had predicted.  EUR/USD rose against its 55-day moving average for the first time in three weeks indicating the Euro may see more strength over the coming days.

The narrative is likely more about dollar weakness than Euro strength.  Fundamentally, the Eurozone is still struggling despite the decent print in Italy.  Data released this morning showed French industrial and manufacturing production missed the mark.

GBP  

The British pound has gained this week on hopes a Brexit deal will ultimately be forged.  However, we have seen little actual progress.  Headlines crossed the wire this morning that the U.K. is still committed to securing a trade deal with the EU, but big hurdles still exist.

German magazine Der Spiegel reported that Germany is standing firm on its demand to allow EU fishing fleets to fish in British waters.  French President Macron reiterated his stance earlier this week which mirrors that of Germany.  Negotiations will continue in Brussels on Monday.  In the meantime, the higher the sterling goes, the further it will have to fall if a deal falls through.

On the data front, the U.K. is still struggling to shake off the COVID shutdowns.  The recovery slowed dramatically in August where GDP rose 2.1% in the month, less than half the pace forecast.

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